Keith Shoe Stores carries a basic black dress shoe for men that sells at an approximate constant rate of 500 pairs of shoes every 3 months. Keith’s current buying policy is to order 500 pairs each time an order is placed. It costs Keith $30 to place an order. The annual holding cost rate is 20%. With an order quantity of 500, Keith obtains the shoes at the lowest possible unit cost of $28 per pair. Other quantity discounts offered by the manufacturer are as follows. What is the minimum-cost order quantity for the shoes? What are the annual savings of your inventory policy over the policy currently being used by Keith?
Order Quantity Price Per Pair
0-99 $36
100-199 $32
200-299 $30
300 or more $28